Standard Admin / Thursday, June 27, 2024 / Categories: CYPRUS PAYROLL TAXES, CYPRUS NHS TAXES, Cyprus Taxation on Individuals, Old Blogs Simple Example of Cyprus Payroll - Gross Salary 2,000 Valuable Article - Written in simple format for everyone (SIC are 8.8% at present - at the time of writing this article was 8.3%) Simple Example of Cyprus Payroll Given the popularity of this topic, we will demonstrate below how to fully understand how Cyprus Payroll Tax Works with a simple example. Note: Payroll is a complex area and should be performed by qualified tax advisers and auditors. Taxable Income Taxable income is derived after the deductions of Social Securities contributions, the NHS (GESY) and some other deductions including life insurance allowances. For the purpose of this articlewe will ignore the various deductions and we will use a simple example so that it is easier for our readers. In addition, even though these deductions do have some impact on the PAYE tax, it is not a signifcant one, in most cases. Example: Salary Information Gross Salary: Euro 24,000 Monthly Salary: Euro 2,000 Employment Starts: January 2023 Employee Deductions on Gross Salary Social Security: 2,000 x 8.3% = 166 NHS: 2,000 x 2.65% = 53 Total Employees Deductions: 219 Note: Gross salary is the salary before any deductions as written on the employement contracts. Annual Taxable Income: 2,000 - 219 =1,781 x 12 months = Euro 21,372 per annum Notes: Each month the Employer will be deducting on your behalf the Social Securities and NHS and will be paying them to the local government offices. As per above example, each month you will be receiving your net salary of Euro 1,781 In order to calculate your PAYE taxes you must gross up your monthly taxable income for a whole calendar year; i.e x 12 months (or 13 - in our example we only have 12 months). If you are employed mid year then you will calculate and account for the months up to December of the year of employment. —-> Monthly Taxable Income is Euro 21,372 2. How to Calculate PAYE (Salary Tax) PAYE means Pay As You Earn and it is literally the Tax deducted each month from your Salary. Taxable Income: Euro 21,372 Tax Free Amount: Euro 19,500 (this amount is set by the Tax Office and has remained stable for more than 10 years to date) To assess whether the salary is subject to PAYE tax you must deduct your taxable amount less the tax free amount of 19,500. —> Taxable Income: 21,372 - 19,500 = 1,872. This is the salary subject to PAYE tax (salary tax) This is the salary that it is subject to personal income tax and which will be taxed at either 20%, 25%, 30% or 35%. Now we must use the below table and we are almost done. SALARY PAYE THRESHOLDS 0 - 19,500 0% 19, 501 - 28,000 20% 28,001 - 36,300 25% 36,301 - 60,000 30% > 60,000 35% The above rates reflect the applicable percentage of tax if the taxable income falls within the specified range with the tax free amount being Euro 19,500. Assessment of Taxable Income As we can see from the table above, the 21,372 taxable income falls within the second bracket of Corporation Tax of 20%. If the taxable income was exceeding the 28,000, lets say it was 29,000 then we would tax the first 28,000 up to 20% and the remaining 1,000 at 25% as per below example. Thus we will do the below exercise and conclude on the PAYE payable in our example: 21,372 - 19,500 = 1,872 x 20% = 374,40 This is the PAYE for the entire year and must be divided by the number of salaries to reach the monthly Net Salary. i.e 374,40 /12 = 31,2 3. Calculation of Net Salary Gross Salary - Less Social Securities - Less NHS - Less PAYE = Net Salary - Money Earned by the Employee --> 2,000 - 166 - 53 - 31,2 = 1749,8 Disclaimer: This is a very simple payroll example with no life or other allowances. The deductions of such allowances are a bit more tricky and should be accounted for by professional accountants. In our example, for simplicity we do not use allowable deductions in order to assist users understand fully how to calculate their Gross to Net Salary. Income Exceeding Euro 55,000 per annum is / could be subject to various tax incentives introduced by the governement and the above example may not be applicable. The PAYE deductions and calculation of Gross to Net income on these scale of salaries are tricky and should be calculated by professional accountants. In our examples, for simplicity we do not use any tax incentives on salaries. 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